As Minnesota lawmakers consider ways to alleviate a projected energy shortfall later this decade, advocates of energy deregulation are pitching a free-market solution. They say deregulating the state's electricity industry would increase power generation and improve the reliability of the system. But the much publicized instability of the deregulated California market has some Minnesotans skeptical of the benefits of retail competition.

HOW MINNESOTA COMPARES
How do Minnesota residential customers compare with the rest of the nation in cost per kilowatt hour?

Hawaii

15

New York

14

New Hampshire

14

Maine

13

Connecticut

12

Rhode Island

12

New Jersey

12

Massachusetts

12

California

12

Vermont

11

Alaska

11

Illinois

10

Pennsylvania

10

Delaware

9

New Mexico

9

Arizona

9

Ohio

9

Michigan

9

Maryland

8

Iowa

8

Florida

8

North Caroline

8

Texas

8

Arkansas

8

Virginia

8

Georgia

8

Kansas

8

South Carolina

8

Colorado

7

Louisiana

7

Minnesota

7

Missouri

7

South Dakota

7

Mississippi

7

Indiana

7

Utah

7

Wisconsin

7

Nevada

7

Alabama

7

Oklahoma

7

Montana

6

Nebraska

6

North Dakota

6

West Virginia

6

Wyoming

6

Tennessee

6

Kentucky

6

Oregon

6

Idaho

5

Washington

5

(Source: Stateline.org)

MINNESOTA'S POWER INDUSTRY is already partially deregulated on the wholesale level, allowing power generators to compete and sell electricity to regulated utilities across state lines. The deregulation bill proposed by the Minnesota Chamber of Commerce would usher in competition on the retail level, that means marketing directly to the consumer.

Deregulation advocate and chamber vice president, Bill Blazar, says power suppliers would compete for customers much like long distance companies have since telephone deregulation.

"We're paying a fraction of what we used to pay for long distance and I'd argue we're getting better service, and just look at the evolution of telephone technology over the last 15 or 20 years," says Blazar.

Under deregulation, independent power producers, rather than utilities, take on the risk inherent in open-market trading, and in exchange, stand to reap the financial rewards.

Critics note, however, that independent power producers can sell power anywhere in the world. Minnesota currently has one of the lowest electricity rates in the country.

David Morris of the Minneapolis-based Institute for Local Self-Reliance predicts the price would go up in a deregulated market because Minnesota customers would have to compete with customers in states where electricity rates are higher.

"Once we say to the electric suppliers that we can choose our own supplier, let's remember we are also saying to suppliers, 'You can also choose your own customers.' People forget that." says Morris.

Even the power industry isn't promising instant rate discounting in a deregulated environment. Electric Power Supply Association spokesperson Mark Stultz says the state's projected electricity shortage could skew results of even a well-planned moved toward deregulation.

"If you're looking at a supply shortage, regardless whether it's a regulated environment or competitive environment, Minnesota ratepayers are going to have to recognize that there's a shortage of electricity that is essentially going to affect their bills," says Stultz.

Nearly half the states in the country are debating retail choice or are in some stage of deregulation. Only a few states have gone through the entire process - among them are Arizona, Pennsylvania, and California.

While nobody's exactly sure how much of a role deregulation has played in California's current energy crisis, a key Minnesota lawmaker says the experience means deregulation is dead on arrival at the Capitol this year.

The chamber's Blazar says even an interim step like setting a date certain for deregulation would send a signal to power plant builders that Minnesota has a potentially lucrative market worth investing in.

He says, for example, an independent power producer might come in and build a 1,000 megawatt power plant, a little smaller than Xcel Energy's Prairie Island nuclear facility.

"The incentive might be 500 of those megawatts go onto the wholesale market available for the regulated utilities to buy. So now we've added 500 megawatts to our tight supply. The other 500 megawatts, you could say, you can sell that to anybody in Minnesota you want. That also takes pressure off of the current system, because that's another 500 Megawatts we don't have right now," Blazar says.

The chamber's bill aims for deregulation by 2003. Blazar says that might be optimistic, but that any date would send a positive message to potential power plant builders.